340B Cuts, Rate Reductions in New Rules Draw Hospital Concern

Rich Daly, HFMA Senior Writer/Editor

Moving total knee arthroplasty from inpatient to outpatient settings would reduce Medicare payments by 30 percent, according to an analysis.

July 17—New Medicare proposed payment rules include various finance policy changes that are drawing concerns from hospital advocates.

The Centers for Medicare & Medicaid Services (CMS) recently issued an Outpatient Prospective Payment System (OPPS)
proposed rule, which would increase rates by 1.75 percent in CY18. CMS estimated that the proposed policies altogether would increase OPPS payments by 1.9 percent and spending by $897 million.

Among the proposed policy changes was a sharp cut in Medicare payment for drugs acquired under the 340B Drug Pricing Program. CMS proposed to pay separately payable drugs purchased through the 340B program (other than drugs on pass-through and vaccines) at the average sales price (ASP) minus
22.5 percent, rather than the current rate of ASP plus 6 percent.

Separately from the proposed rule, CMS planned to establish a modifier to identify whether a drug billed under the OPPS was purchased under the 340B program.

CMS justified the proposed change by citing several studies and critical reports from the Medicare Payment Advisory Commission (MedPAC) amid concerns that the program was leading to larger coinsurance costs for beneficiaries. Participants in the 340B program saved $3.8 billion on
outpatient drugs purchased through the program in 2013, according to MedPAC, while the number of participating hospitals has grown from 583 in 2005 to 2,140 in 2014.

“We are concerned that the current payment methodology may lead to unnecessary utilization and potential overutilization of separately payable drugs,” CMS officials wrote in the rule.

But hospital advocates said the rate cut was misdirected.

“It is unclear why the administration would choose to punitively target 340B safety-net hospitals serving vulnerable patients, including those in rural areas, rather than addressing the real issue: the skyrocketing cost of pharmaceuticals,” Tom Nickels, executive vice president
for the American Hospital Association, said in a
written statement. “CMS repeatedly cites the fact that Medicare expenditures on drugs are rising due to higher drug prices as an impetus for its proposal. Yet, its proposed 340B policy change does nothing to directly tackle this issue.”

A previous survey of 340B Health participants indicated that about 60 percent of hospitals likely will withdraw from the program if payment cuts eliminate their 340B savings on Part B drugs. A written statement from 340B Health, an association of more than 1,300 hospitals, said the proposed change
“appears close to” the type of change that would drive such a mass departure.

The association warned that elimination of the 340B benefit from Part B drug purchasing would lead to cuts in patient services.

“These new regulations will penalize safety net hospitals participating in 340B and severely impede their ability to sustain vital services and care to patients in the nation’s most underserved communities,” Darrell Kirch, MD, president and CEO of the Association of American Medical
Colleges (AAMC), said in a
written statement.

Nickels urged CMS to drop the proposed change and instead “take direct action to halt the unchecked, unsustainable increases in the cost of drugs.”

Off-Campus Payment Cut

CMS also proposed changes to site-neutral policies under the Bipartisan Budget Act of 2015. That law required services furnished in off-campus provider-based departments—except for dedicated emergency department services—that began billing under the OPPS on or after Nov. 2, 2015, to instead
be paid under an applicable Part B payment system.

A 2018 Medicare Physician Fee Schedule
proposed rule would reduce payment for those newer off-campus departments from 50 percent of the OPPS rate in CY17 to 25 percent in CY18 for non-excepted services.

Blair Childs, senior vice president for Premier, said his member hospitals were “shocked” by the proposed payment reductions.

“At a time when the nation is moving toward value-based payments, this proposal makes no sense,” Childs said in a written statement. “In essence, it removes all incentives to provide care out in the communities rather than at the hospital, and ultimately will lead to higher overall
Medicare spending.”

Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, said his organization, which represents safety net hospitals, was “deeply troubled” by the proposed payment cut.

The change would produce “an unsustainable payment rate that will further reduce access for people in chronically underserved communities—health care deserts—and the hospitals on which they rely,” Siegel said in a written statement. “Hospitals that otherwise would seek to enhance
access by establishing clinics in health care deserts will not do so if they determine this damaging payment policy makes new outpatient centers economically unsustainable.”

Joint Move

CMS has proposed to remove total knee arthroplasty (TKA) from Medicare’s inpatient-only list and solicited comments on also moving partial and total hip replacement to the ambulatory surgical center (ASC) covered procedures list.

The proposed rule stated that the base rate for a TKA procedure will be $9,912.69 on an outpatient basis, which would be 30 percent less than the average Medicare inpatient payment, according to Hedgeye, a market research firm.

“The 30 percent cut in reimbursement for [TKA] will significantly pressure device prices and inpatient hospitals won’t be able to compete with ASCs performing knee replacements,” Hedgeye wrote in an investors’ note.

Some hospital advocates have worried that removing the TKA procedure from the inpatient-only list could adversely impact the Bundled Payments for Care Improvement (BPCI) initiative and the Comprehensive Care for Joint Replacement (CJR) model, which both incentivize savings on hospital joint
procedures.

CMS also proposed prohibiting Recovery Audit Contractors from reviewing patient status or denying payment for TKA procedures for two years “to allow time and experience for these procedures under this setting.”

Other Changes

Among other changes, the proposed rule would reinstate for CY18 and CY19 the moratorium on enforcement of the direct supervision policy for outpatient therapeutic services at critical access hospitals (CAHs) and small rural hospitals with 100 or fewer beds.

“Stakeholders stated that some small rural hospitals and CAHs have insufficient staff available to furnish direct supervision,” CMS officials wrote in the rule.

CMS also proposed to delay implementation of the outpatient and ASC Consumer Assessment of Healthcare Providers and Systems survey-based measures in the Outpatient Quality Reporting (OQR) program until further notice. The rule also would remove six quality measures from the OQR.

Missing from the rule is any proposal to lighten Stage 3 reporting requirements that are slated to begin Jan. 1 under the electronic health record incentive program. In June, CMS issued rules implementing the second year of Medicare’s physician payment overhaul, which included extending
use of modified Stage 2 meaningful-use requirements for physicians through 2018.

Moving total knee arthroplasty from inpatient to outpatient settings would reduce Medicare payments by 30 percent, according to an analysis.

July 17—New Medicare proposed payment rules include various finance policy changes that are drawing concerns from hospital advocates.

The Centers for Medicare & Medicaid Services (CMS) recently issued an Outpatient Prospective Payment System (OPPS)
proposed rule, which would increase rates by 1.75 percent in CY18. CMS estimated that the proposed policies altogether would increase OPPS payments by 1.9 percent and spending by $897 million.

Among the proposed policy changes was a sharp cut in Medicare payment for drugs acquired under the 340B Drug Pricing Program. CMS proposed to pay separately payable drugs purchased through the 340B program (other than drugs on pass-through and vaccines) at the average sales price (ASP) minus
22.5 percent, rather than the current rate of ASP plus 6 percent.

Separately from the proposed rule, CMS planned to establish a modifier to identify whether a drug billed under the OPPS was purchased under the 340B program.

CMS justified the proposed change by citing several studies and critical reports from the Medicare Payment Advisory Commission (MedPAC) amid concerns that the program was leading to larger coinsurance costs for beneficiaries. Participants in the 340B program saved $3.8 billion on
outpatient drugs purchased through the program in 2013, according to MedPAC, while the number of participating hospitals has grown from 583 in 2005 to 2,140 in 2014.

“We are concerned that the current payment methodology may lead to unnecessary utilization and potential overutilization of separately payable drugs,” CMS officials wrote in the rule.

But hospital advocates said the rate cut was misdirected.

“It is unclear why the administration would choose to punitively target 340B safety-net hospitals serving vulnerable patients, including those in rural areas, rather than addressing the real issue: the skyrocketing cost of pharmaceuticals,” Tom Nickels, executive vice president
for the American Hospital Association, said in a
written statement. “CMS repeatedly cites the fact that Medicare expenditures on drugs are rising due to higher drug prices as an impetus for its proposal. Yet, its proposed 340B policy change does nothing to directly tackle this issue.”

A previous survey of 340B Health participants indicated that about 60 percent of hospitals likely will withdraw from the program if payment cuts eliminate their 340B savings on Part B drugs. A written statement from 340B Health, an association of more than 1,300 hospitals, said the proposed change
“appears close to” the type of change that would drive such a mass departure.

The association warned that elimination of the 340B benefit from Part B drug purchasing would lead to cuts in patient services.

“These new regulations will penalize safety net hospitals participating in 340B and severely impede their ability to sustain vital services and care to patients in the nation’s most underserved communities,” Darrell Kirch, MD, president and CEO of the Association of American Medical
Colleges (AAMC), said in a
written statement.

Nickels urged CMS to drop the proposed change and instead “take direct action to halt the unchecked, unsustainable increases in the cost of drugs.”

Off-Campus Payment Cut

CMS also proposed changes to site-neutral policies under the Bipartisan Budget Act of 2015. That law required services furnished in off-campus provider-based departments—except for dedicated emergency department services—that began billing under the OPPS on or after Nov. 2, 2015, to instead
be paid under an applicable Part B payment system.

A 2018 Medicare Physician Fee Schedule
proposed rule would reduce payment for those newer off-campus departments from 50 percent of the OPPS rate in CY17 to 25 percent in CY18 for non-excepted services.

Blair Childs, senior vice president for Premier, said his member hospitals were “shocked” by the proposed payment reductions.

“At a time when the nation is moving toward value-based payments, this proposal makes no sense,” Childs said in a written statement. “In essence, it removes all incentives to provide care out in the communities rather than at the hospital, and ultimately will lead to higher overall
Medicare spending.”

Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, said his organization, which represents safety net hospitals, was “deeply troubled” by the proposed payment cut.

The change would produce “an unsustainable payment rate that will further reduce access for people in chronically underserved communities—health care deserts—and the hospitals on which they rely,” Siegel said in a written statement. “Hospitals that otherwise would seek to enhance
access by establishing clinics in health care deserts will not do so if they determine this damaging payment policy makes new outpatient centers economically unsustainable.”

Joint Move

CMS has proposed to remove total knee arthroplasty (TKA) from Medicare’s inpatient-only list and solicited comments on also moving partial and total hip replacement to the ambulatory surgical center (ASC) covered procedures list.

The proposed rule stated that the base rate for a TKA procedure will be $9,912.69 on an outpatient basis, which would be 30 percent less than the average Medicare inpatient payment, according to Hedgeye, a market research firm.

“The 30 percent cut in reimbursement for [TKA] will significantly pressure device prices and inpatient hospitals won’t be able to compete with ASCs performing knee replacements,” Hedgeye wrote in an investors’ note.

Some hospital advocates have worried that removing the TKA procedure from the inpatient-only list could adversely impact the Bundled Payments for Care Improvement (BPCI) initiative and the Comprehensive Care for Joint Replacement (CJR) model, which both incentivize savings on hospital joint
procedures.

CMS also proposed prohibiting Recovery Audit Contractors from reviewing patient status or denying payment for TKA procedures for two years “to allow time and experience for these procedures under this setting.”

Other Changes

Among other changes, the proposed rule would reinstate for CY18 and CY19 the moratorium on enforcement of the direct supervision policy for outpatient therapeutic services at critical access hospitals (CAHs) and small rural hospitals with 100 or fewer beds.

“Stakeholders stated that some small rural hospitals and CAHs have insufficient staff available to furnish direct supervision,” CMS officials wrote in the rule.

CMS also proposed to delay implementation of the outpatient and ASC Consumer Assessment of Healthcare Providers and Systems survey-based measures in the Outpatient Quality Reporting (OQR) program until further notice. The rule also would remove six quality measures from the OQR.

Missing from the rule is any proposal to lighten Stage 3 reporting requirements that are slated to begin Jan. 1 under the electronic health record incentive program. In June, CMS issued rules implementing the second year of Medicare’s physician payment overhaul, which included extending
use of modified Stage 2 meaningful-use requirements for physicians through 2018.

HFMA RESOURCE LIBRARY

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